Monday, August 31, 2009

As you can see from the chart posted, the price of gold has been "coiling" into an ever-tighter pennant formation. This technical formation can often lead to a substantial upside breakouts.

(click on chart to enlarge)

We are now entering into what is historically the best seasonal period of the year for the price of gold and mining stocks. It looks like the European Central Banks are largely done dumping their citizens' gold, which will only add to the very tight market conditions. India, historically the largest gold buying country in the world (China recently surpassed India) is entering into its biggest gold buying time of the year. It is in the autumn in which Indian farmers tend to invest their profits into gold. An even bigger component is the gold buying which occurs for Indian weddings, which tend to happen during the festivals in October and November. It is estimated that 40% of Indian gold demand occurs during the autumn.

Finally, in what can be seen as incredibly bullish for the price of gold, the Central Central Fund of Canada (CEF) just filed a prospectus filing for periodic share offerings up to $1 billion. CEF issues stock and then uses the proceeds to buy gold and silver bars, which CEF holds in trust. Unlike GLD, which refuses to show the world whether or not it really holds the gold it supposedly buys with shareholder money, CEF will accomodate any visitor who would like to view the CEF vault with their own eyes. CEF is seeing enormous demand for their shares from big funds, but typically only issues shares when the stock trades around 15% above the value of the underlying gold and silver in the trust. This filing is HUGELY bullish.

Keep an eye on the $960 and $980 price levels. If you wait until gold breaks over $1000, you might find yourself waiting for a pullback that never comes.

We know that Dodd received a "FOA" mortgage from Countrywide. "FOA" is Friends of Angelo Mozilo, the disgraced and corrupt ex-Countrywide CEO who is under massive class-action lawsuits which total in the $100's of billions. In fact, one of Dodd's mortgages was underwritten in DC stating that it was his "primary" residence, when in fact his primary home is in Connecticut. This means is he received much more favorable terms and a lower mortgage rate. We also know that Dodd was responsible for engineering legislation that helped usher in the proliferation of subprime mortgages, especially with regard to the ability of Fannie Mae and Freddie Mac to underwrite these garbage loans, many of them fraudulent.

And now we see via Forbes, that Senator Dodd went to bat for a big Connecticut hedge fund, which also owns a mortgage servicing business, in order for this fund to attain access to the TALF program (Term Asset-Backed Lending Facility). TALF is a Federal Reserve loan facility to support toxic asset-backed securities, many of which were packaged by Wall Street. Wall Street couldn't unload them on the public and so now the Fed is bailing out Wall Street. HOWEVER, so is the Taxpayer. The TALF program is back-stopped with $20 billion of credit protection guarantees from the Tim Geithner-led U.S. Treasury (anyone vote for this when they voted for Obama?). This means that the Taxpayer pays for the first $20 billion of losses on these securities that the Fed bought from Wall Street firms. The problem is, we don't know to what extent the Fed has overpayed for these assets, because Barney Frank and the Senate won't pass legislation allowing the Taxpayer to audit the Fed so we can find out how much Taxpayer money is being transferred directlty to Wall Street. This link comes from Clusterstock.com:

Chris Dodd may have put pressure on the Fed to aid a troubled mortgage servicer. Forbes is reporting that the Senator from Connecticut helped Carrington Mortgage by sending a letter to the Federal Reserve urging easier terms for mortgage servicers taking part in the TALF program. And when the Fed changed the TALF program, it turned out that Carrington was the only company to benefit. Carrington is owned by a hedge fund based in Greenwich, Connecticut.

Sunday, August 30, 2009

In an event that will inevitably be downplayed by the U.S. media spinmeisters (CNBC, Wall Street, the Obama Administration), the Democratic Party of Japan overwhelmingly took control of the Japanese Government in elections this weekend. Why do we care, you ask? Take a look at this statement by Masaharu Nakagawa, the chief finance spokesman in the DPJ:

the nation should consider shifting its $1 trillion of foreign reserves away from the dollar and buying International Monetary Fund bonds. “In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing,” Masaharu Nakagawa, the shadow finance minister in the Democratic Party of Japan, said in an interview in Tokyo on July 9. “Many countries are starting to diversify their reserves.”

In an interview with BBC News back in May, Mr. Nakagawa asserted that Japan should only buy U.S. Treasury bonds if they were denominated in yen, rather than dollars. At the time, the BBC believed that the DPJ had no chance of taking power in Japan:

It is clear that Japanese citizens voted for sweeping changes to be made in the Japanese Government. One of the major policies in the DPJ's platform is to reduce Japan's exposure to the U.S. dollar. Now we will see if the Japanese will get real change or "Obama Change." Obama Change is nochange other than to change the rate of ongoing financial and political decay in the U.S. If the DPJ holds firm to its campaign platform, real change in Japan will mean a substantial change in the wealth of America - to the downside.

Saturday, August 29, 2009

In a move which further erodes the First Amendment of the Consitution and completely undermines the civil liberties implied in the Constitution and Bill of Rights, the Senate is working on a Bill which would give President Obama the ability to essentially shut down the internet in the event of a national emergency:

Details of a revamped version of the Cybersecurity Act of 2009 show the Senate bill could give the president a "kill switch" on the Internet and allow him to shut out private networks from online access.

My view on this is that the Government is getting more concerned about the growing unrest with the Government's failure to reign in the growing corruption in our banking and political systems and is looking for ways to limit the dissemination of information to the public by cutting off internet access. Given the low probability of terrorism from sources external to the country, I would suspect that this means that the Government is increasingly concerned about how the public would respond to another massive banking crisis. Please note that the Patriot Act enables to the President to regard banking and financial market disruptions as "security threats."

Friday, August 28, 2009

I publicly challenged Meredith Whitney to a bet on her call that 300 banks would fail before this crisis is over. I offered to give her 310 and I would take the over. I offer the same to that pathetic, faux-analyst Dick Bove. I'm still waiting for Meredith to contact me on my offer.

Former North Fork CEO, John Kanas, was on CNBC saying that there would be ANOTHER 1,000 bank failures, which would put the total over 1,000. As a speculator, would you bet on an industry insider like Kanas, or would you put your money on Wall Street pimps like Whitney and Bove? Here's a link to Kanas' interview:

Wednesday, August 26, 2009

"According to the Department of Transportation, as of Friday, 59 percent of vehicles bought with Clunkers cash were foreign. The top two sellers were the Toyota Corolla and Honda Civic, both made by Japanese auto manufacturers. The only Detroit vehicles in the top 10 were the Ford Focus and Escape." Taxpayer-owned GM and Chrysler didn't even really benefit...

To be blunt: No. As has been discussed and analyzed ad nauseum, the Government likes to release, and the mainstream media and Wall Street thiefs like to report, economic number numbers which have been "seasonally adjusted" and often bear no resemblence to reality and typically are subjected to future downward revisions which no one pays attention to.

With that in mind, let's review today's new home sales release, which was greeted with great fanfare on Wall Street and CNBC, as it was announced that July's new home sales (seasonally adjusted) increased 9.6% from June.

Let's look at the raw, unadjusted data, which can be found buried here: Census Bureau New Home Sales. July '08 to July '09 new home sales declined 9.3%. June to July this year did increase 8.3%, but was less than the "seasonally adjusted" nonsense, but keep in mind that your $8k taxpayer subsidy has fueled a small boom in lower priced homes, which is reflected in the decline in the home price metric. The median home price declined 13% $210,000. And finally, as Calculatedriskblog.com points out, July's non-seasonally adjusted new home sales number was the 3rd lowest for the month of July since the Census Bureau started tracking sales in 1963.

Oh, and one more point, as per homebuilder earnings reports for the 2nd quarter, cancellation rates are still running generally in excess of 20% (usually financing falls through). The Census Bureau does not take that into account and they do not back out actual cancellations when they revise past calculations.

Do not be sucked into the fanatasy that the Government and Wall Street is spinning right now. There is a monster wave of prime mortgage-financed homes which will hit the market before the end of the year and if Obama doesn't extend the Taxpayer Cash for Homes program, expect a cliff-dive in home sales at the lower end, as homebuyers are now allowed to credit the $8k tax credit as part of the their down payment - back to almost no-money-down mortgages again. Just like with the Taxpayer Cash to GM/Ford program, which saw interest and usage run out well before it was slated to expire, in all likelihood by the time Dec 1 arrives, most people who could get financing for a home using the tax credit will have already done so and even an extension of the program will not maintain current sales rates.

Tuesday, August 25, 2009

Last week I posted commentary suggesting that the European Central Banks were, for the most part, done dumping their gold reserves - either they have mostly run out of gold or have decided to keep what they have left. At the time, I was unaware that France had also made a statement that they were done selling their gold.

Last month GFMS, the organization that monitors global supply and demand of gold - albeit not accurately (i.e. they tend to vastly understate demand and do not account for declining gold mining output, which is now a monthly occurrence) reported that global Central Banks became net buyers of gold. Here is a link to an article referencing the GFMS report: Central Banks Are Now Net Buyers of Gold

Russia announced last week that they had increased their Central Bank gold reserves by 600,000 ounces. Here is a chart I borrowed from Ed Steer's Gold & Silver Daily

We also know that China has been actively increasing their gold reserves, which are still miniscule compared to their total currency reserves. In numerical terms, China's gold holdings are roughly 2% of its $2 trillion in currency reserves. Globally, Central Banks hold an average of 10% of their currency reserves in gold. If their currency reserves stayed at $2 trillion, and with gold at $950/oz., China would have to accumulate over 5000 tons of gold to bring its gold holdings up to just the global Central Bank average. Please note that annual global mining output of gold is 2300 tons and declining rapidly. Anyone see a massive demand/supply imbalance here?

This development among the Central Banks is quite significant, because for the last 12 or so years, the gold market has been functioning under a roughly 1000 ton supply deficit. And with demand growing and mining output declining, this deficit is growing. Up until this year, Central Banks had been selling their gold reserves in order to bridge the supply/demand gap. Assuming the trend of CB accumulation continues, this can only mean one outcome for the direction of the price of gold. I'll leave that to your judgement to decide.

When I first became interested in the precious metals and mining stock sector back in late 2001, I followed Jim Dines' subscription newsletter as part of my education process. Back then he called for a bull market of unprecedented proportions in gold, silver and mining stocks based on

There would be a global race by countries to devalue their fiat currencies

Central Banks would shift from being net sellers to net buyers of gold

Mining stocks would embark on a bull market move that would make the internet stock bubble look tame

Well, now two out of three of Dines' propositions have occurred. It's only a matter of time until the third one is realized.

Sunday, August 23, 2009

The first two charts are the 1-yr. daily price of gold in U.S. dollars and in Indian rupees (hat tip to MontyHigh of www.worldofwallstreet.us for the second chart). These two charts point to a big move up for gold for several fundamental and technical reasons.

In addition to the ongoing financial deterioration of the U.S. Government and melt-down in the banking system - and the aggressive accumulation of gold by China and Russia to offset their U.S. dollar exposure - the primary seasonal buying by India is about to begin:

"Gold is becoming a major investment avenue for Indian investors. Despite high local prices, dollar volatility and fall in general demand for jewellery, retail investment demand for gold has taken a sharp upswing of 515.8 per cent to 109 tonnes in the second quarter (April-June) of calendar 2009 from 17.7 tonnes in the first quarter."

A lot of market observors recently have been calling for a big bounce in the dollar. But as long as the Fed is inflating the money supply, which is reflating the stock market bubble, the dollar will continue its downward path and, conversely, gold will continue moving higher. The only issues in my mind with regard to this are the timing, duration and magnitude of the move.

Saturday, August 22, 2009

For some reason, Ben Bernanke and the Federal Reserve have decided that they do not need to show the world, and especially all the inquiring U.S. Taxpayers, proof that the U.S. Mint holds in physical custody the 8100 tons of gold that the U.S. has been reporting going back to the Bretton Woods Treaty signed in 1944. The last time a genuine independent audit of the 8100 tons was performed was when Eisenhower was President.

The question is raised then, how come the Federal Reserve is putting up a formidable legal blockade in order to prevent GATA (the Gold Anti-Trust Action Committee) from gaining access under repeated Freedom Of Information Act inquiries? Wouldn't everyone reading this like to see, for sure, that the 8100 tons really exists? This is OUR gold folks.

Here's a link to the latest attempt by GATA to force the Federal Reserve to show proof to the world that the United States' gold holdings is bona fide:

Undoubtedly, this issue among several, are the reasons why the Fed hired the former Enron chief lobbyist, Linda Robertson, and is spending millions to fight the attempt of Congress to force an audit of the Fed. At last count, Ron Paul's HR 1207 had 282 co-sponsors - and Barney Frank is sitting on that Bill in Committee and it would overwhelmingly pass a Floor vote - and Bernie Sander's similar Bill in the Senate now has 23 co-sponsor's. Moreover, polls show that 75% of all Americans would like to see this Legislation passed into law.

Here's my compromise: forget the full audit, just show us our gold. What are you trying to hide Ben?

Friday, August 21, 2009

If she wants to wager enough money to make it worth my time, I'll give her 310 failures and take the over 310 failures, even money. Saying that there will be 300 bank failures is like saying the sun will rise in the east tomorrow.

The existing home sales number released today showed a slightly better than expected number for the month of July. Given that we are in the heart of home buying season, given all of the money pumped into the system by the Fed AND especially given the $8,000 first time home buyer tax credit, we shouldn't be surprised to see a small, seasonal bounce in home sales right now.

As pointed out by Clusterstock.com: Existing Home Sales would have been negative over June if not for the increase in Northeast Condo sales, Single Family Detached sales were DOWN 5000 units June to July, and in the all-important Western region, existing sales were down 10%.

But let's look at the underlying factors and data to understand what is really going on with the "seasonally adjusted" and polished-up-for-public-presentation number released by the National Association of Realtors. Here are the factors we see that will undermine this brief respite from the ongoing housing Depression:

1) The universe of qualified first-time home buyers gets exhausted; 2) Distressed investors step away as the ever-present "shadow" inventory becomes actual inventory (shadow inventory is bank-owned homes and would-be sellers waiting for "a bounce in the market"); and 3) The massive wave of prime mortgage foreclosures will flood the market, putting pressure on prices in every price-segment AND on buyer demand.

First-time home buyers and foreclosure/short-sale buyers - so-called distressed investors - represented 61% of the estimated sales for July. This metric is not a sign of a healthy, sustainable market for a couple reasons. First-time buyers are most likely "pulling" future sales into the present, as the first-time home buyer tax credit of $8,000 is set to expire in December. Home sales drop off anyway after August, so we would expect to see an even bigger drop in the third and fourth quarters, even if Obama extends taxpayer subsidization of first-time buyers.

As for the distressed investor segment, many of these buyers will look to "flip" their "distressed" purchase fairly quickly or they'll be forced to rent out the property to avoid the negative cash flow hit from holding investment homes. But renting will be made a lot more difficult by the record inventory of rentals units currently on the market, and growing. I would expect to see a lot of "investors" look to try and unload their property if they can't rent it out or become nervous about the market.

And finally, the inventory levels are still at unusually high levels. We know for a fact that banks have been withholding foreclosed homes on their books (REO, real estate owned) from the market in an attempt to reduce supply and hold up prices. We also know, as reported yesterday, that the percentage of properties in foreclosure or delinquency hit a record high of 13.2% of all single-family mortgages. What makes this metric even more severe in terms of housing market economics is the large jump in foreclosures in prime mortgages and FHA-insured mortgages.

Up to this point, the lower priced homes, typically bought by first-timers and distressed investors, have been by far the highest component of existing homes sales. With the impending tsunami of prime mortgage foreclosures will be a flood of much higher priced homes, which will ultimately put a lot of pressure on the lower end of the market. Of course eventually these banks will have to put a lot of their foreclosure inventory on the market, which will exacerbate the problem.

Ultimately this brief "bounce" in home sales will run into the problems discussed above and, because the Fed and the Government tried to put a floor under the market, the ensuing next leg down will be even worse than what we went through over the past 18 months. It will be interesting to see if the Government decides to spend some of the trillions of dollars it's printing to become a home buyer of last resort (I say this only half-facetiously because I bet it's been discussed). Let's not forget that the taxpayer now owns outright or de facto General Motors, Fannie Mae, Freddie Mac, Citibank and AIG. So in a way, via FNM and FRE, the taxpayer is already monetizing the housing market.

Thursday, August 20, 2009

June freight rail traffic was down 19.5% in June 2009 from June 2008. This was the eighth straight double-digit monthly rail carload decline. This statistic is important because there is a very high correlation between rail freight traffic and GDP. Interestingly it would appear from scanning the report linked below, that the cash for clunkers program might have caused a brief bounce in automobile shipments. We know from the Edmunds.com report issued a few days ago that bounce in auto sales was quite brief. Here's the link to the report, which is quite interesting:

The issue synthesizes down to which party at the table is going to take the financial hit when the individual home mortgage principal balance is reduced and the monthly cash flow generated from the mortgage is reduced in order to try and keep the homeowner from walking away (which is whole issue unto itself as unemployment skyrockets).

As per this court case being tried, the parties at the table are 1) the original bank which underwrote the mortgage and 2) the investors in the mortgage-backed bond trust which purchased the mortgage, ultimately enabling the underwriting bank to fund the mortgage and the homeowner to overpay for the house:

"The current case was brought by two investment funds holding Countrywide mortgages, Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC. These investors complained they would be harmed if Countrywide shifted the burdens of loan modifications to 374 trusts into which loans had been repackaged and securitized. These investors would rather Countrywide repurchase modified loans for the full unpaid amounts."

So either these mortgage-backed trusts have to take a big hit - and don't forget the Chinese and Japanese were very large investors in these trusts on the faith that they were triple-A rated quality. Or Bank of America, which now owns Countrywide and other fraudulent mortgage originators, has to pony up the cash to keep the investors whole. And we KNOW what it means it BAC has to fund the mortgage losses in the modifications...

...How 'bout it America? Feel like using more of your tax money to pay for mortgage modifications on mortgages that should have never been underwritten in first place? Your money is already being funnelled into all of the Fannie Mae/Freddie Mac mortgage mods being done. Oh, and by the way, studies show that over 50% of all modified mortgages go delinquent again within the first 12 months...

Just this morning, ex-Goldman Sachs CEO and current New Jersey Governor, John Corzine, was on CNBC proclaiming that the economy is stabilizing. Several Obama officials, including Secretary of Treasury Tim Geithner, and Federal Reserve Chairman Ben Bernanke also have publicly said that the economy has stabilized.

As retailing analysts know, these are horrific revenue numbers. The consumer is clearly not spending money.

Here's the most recent data from the much-heralded Cash for Clunkers program. It looks like it had about a 3 week boost to auto sales, and now according to Edmunds.com, there is a rapid decline in cash for clunkers sales, despite the Government tripling the total size of the program:

"The rush of automotive sales activity brought on by the "Cash for Clunkers" program is fading fast, according to Edmunds.com, whose latest study of car buyer behavior indicates that automotive purchase intent is down 31 percent from its peak in late July."

We are also seeing several other grass roots metrics, like a shocking decline in consumer confidence reported on Tuesday, a sharp drop in the architectural billings index (leading indicator for construction) and a plummet in consumer credit and bank lending.

If our economic and political leaders are seeing signs of "stabilization," I'd love to know exactly what data they are looking at.

Wednesday, August 19, 2009

From the Economic Times on 8/3: "Net official sector [European Central Bank system] gold sales in 2009 may drop to their lowest level since 1994, after sales in the first half of the year fell 73 percent from a year earlier, metals consultancy GFMS said in a report on Monday."

Regarding the latest Central Bank gold sales agreement, the GFMS issued this statement: "Gold sales under the new Central Bank Gold Agreement are unlikely to reach their full quota of 2,000 tonnes over the next five years, or 400 tonnes per year, the chairman of metals consultancy GFMS told Reuters on Friday."

Last week the ECB system reported zero weekly gold sales. In fact, over the last several weeks, ECB gold sales have been extraordinarily negligible. By the end of July, the ECB system had sold just 140 tons of gold under a contract that limits annual sales to 500 tons. That contract expires in September. This is by far lowest annual amount of gold sold by the ECB since I've been involved in the gold market over the last 8 years.

And the new gold agreement reduces the annual sales limit to 400 tons in order to accommodate IMF gold sales. China and India have indicated that not only would they like to buy the 403 tons the IMF wants to sell, but that they would like to buy all 3200 tons of IMF gold.

We know that Germany, Switzerland and a few other European countries have indicated that they are done selling gold. Austria issued a statement this week that it was done selling gold until 2014. Italy is working on a tax agreement that would enable them to raise revenues without selling any more gold to raise revenues. So which countries are left as sellers? Likely candidates are France and Spain and maybe some smaller ECB countries which need to raise some cash.

With world gold production declining every month now, and with global gold supply being quickly scooped up by several Asian and Arab Central Banks, where will the U.S. Government find more gold to keep its gold price suppression scheme alive? At the end of the day, the U.S. will no longer be able to use paper gold - Comex paper contracts and OTC gold derivatives (JPM is by far the biggest player in OTC gold paper) - to keep a lid on the price of gold. And gold-buying countries and investors are quickly learning how valuable physical custody (i.e. possession that is under your control) has become. The big hedge fund Greenlight Capital, which used to be the largest holder of the GLD ETF, recently dumped is GLD paper and replaced it with physical bullion in its own safekeeping. Apparently they read my report on the potential custody fraud going on at GLD.

Does anyone really believe the U.S. gold stockpile stills stands at 8100 reported tons, despite really changing since the last time the gold inventory was audited - back when Eisenhower was President? Evidently Barney Frank believes that number because he continues to sit on a Bill to audit the Fed which has enough House support to pass a floor vote and which has 75% support from the American people and which would allow us all to see just how much physical gold the U.S. really has.

The price of gold is going to go much higher in the near future. Make sure you have some.

Tuesday, August 18, 2009

A new survey by zillow.com, an online real estate services company, shows that 81% of those polled believe that their house will not decline in value over the next 6 months:

"homeowners are more optimistic than ever about the future values of their homes, with 81 percent of homeowners believing their own homes' values will not decline in the next six months - the highest percentage on record since the first quarterly Homeowner Confidence Survey, which was fielded in the second quarter of 2008."

Clearly homeowners still have their heads in the sand and are either unwilling to look at the facts of the marketplace or they are being misled by the flurry of positive data-spin and perception management being proliferated by Wall Street, the National Association of Homebuilders, the National Association of Realtors and the Government ("trust me, jump on in - the water is perfect").

For anyone who is hesitant about the future direction of housing prices, please refer to this post of mine from a few weeks ago:

The other factor lending slight support to the mid-price range of homes right now is the $8k taxpayer subsidization of first time homebuyers down payments (the FHA now lets a home buyer apply the $8k tax credit to the down payment). Let's see what happens to home prices if Obama takes away this wealth transfer payment...

I typically would like this blog to remain free from partisan political issues, other than as they relate directly to affecting the way information about finanicial issues get disseminated into marketplace - i.e. the Federal Rerserve should audited and Congress needs to pass a Bill to make this happen.

However, I wanted to share an essay from The Daily Bell which reflects a message being sent all across the country by grassroots citizen movements and which is being ignored by almost all politicians in BOTH parties. Here's an excerpt:

"The monetary elite that has tended to dominate the Western conversation in the past century has done all it could do to inculcate the masses with the idea that a strong and forceful democratic government is necessary for prosperity"

I find it quite ironic how, increasingly, the left side of the political spectrum, who believes in big Government, is actually in bed with same crony/elitist bankers they so despise. Here's the link:

Monday, August 17, 2009

The new CEO of AIG is going to be paid $7 million per year plus incentives. Clusterstock.com justifies this by saying: "At some point if we're not going to quickly break up AIG, we're going to have to pay someone to run it."

This is a complete cop-out. AIG should have been thrown into chapter 7 liquidation, but it was not in order to accommodate the monetization of AIG's derivatives counter-parties, led by Goldman Sachs. THAT WE ARE AWARE OF, close to $100 billion dollars has been shuffled from the U.S. Treasury, THRU AIG, and into the coffers of the investment banks who stood to lose $10's of billions from an AIG bankruptcy.

So instead of saying "hey man, we need to pay someone really well with Taxpayer money to oversee the transfer of wealth from the Government to Goldman Sachs," we should be asking ourselves why AIG hasn't already been liquidated. AIG will ultimately cost the Taxpayers $100's of billions - but hey, at the new CEO is well-paid.

Friday, August 14, 2009

The Citadel hedge fund group is in the process of dumping their stock in E-Trade. About two years ago they bought a majority stake in the ailing company in order to "vulturize" E-Trade's distressed home equity loan assets. Well, now Citadel is dumping its equity stake:

"The Chicago-based alternative investments giant is slashing its stake in E*Trade by more than two-thirds, it said in a Securities and Exchange Commission filing. Citadel, E*Trade’s largest shareholder with a 14.9% stake, plans to sell shares under an insider stock-trading plan, putting some on the block every day until the end of October"

In other words, Citadel is in a position to make a lot of money off of your stock trades at E-Trade, either front-running your orders or providing your order with inferior trade execution - and in a manner which allows Citadel to make a small "skim" off of your order flow.

The moral of the story is that you are better off moving your brokerage/IRA account to well-capitalized firm with a good balance sheet, like Fidelity or Schwab.

Thursday, August 13, 2009

What's the "message" of the market here? Over the last two weeks corporate insiders have dumped over $2.1 billion in stock vs. $73.1 million in buys. I'm not sure I've ever seen the ratio of insider sells vs. buys this skewed toward officers and directors looking for the exit door. Talk about the captain jumping into the lifeboat and speeding away before the ship sinks....

Given that the trailing, "as reported" price/earnings ratio is now 144, or substantially above the peak p/e ratio on the Nasdaq at the top of the tech bubble, what is the market trying to tell us?

Think about that when you call up your financial advisor or broker and tell him you want get out of the stock market.

up 38% from July 2008 and 7% from last month. This data adds support to my view that a big foreclosure wave is building - especially in the prime mortgage/expensive home category - that will crash down on our credit system before the end of this year. From www.marketwatch.com:

At some point the stock market will have to reconcile with the reality in the underlying economy. It will not be pretty. Prepare now and take advantage of this bear market rally by moving your money out of stocks and into the precious metals sector. The best-warned is forewarned.

Wednesday, August 12, 2009

China recently surpassed South Africa as the world's largest gold producer - it is the only country in the world with increasing gold output - overall global gold production has been declining for about three years now. China has now become the largest "consumer" of gold, taking over the number 1 spot from India. I borrowed this post from www.lemetropolecafe.com, an invaluable nightly report on the gold market if you want to actively invest in the sector:

One of the beneficiaries of the explosive growth of the Chinese money supply is the Shanghai Gold market, which is trading near 6,600 Yuan per ounce, and is also tracking powerful rallies in industrial commodities. China is poised overtake India as the world's top gold consumer this year, and there is speculation that Beijing will quietly buy the gold which the IMF wants to sell in the years ahead.

China's Gold Dominance

China, now the world's biggest Gold Mining nation, is seeking to boost gold output by 3% to 290 tonnes this year, far less than the 400 tonnes it consumed last year. Thus China could become an even bigger importer of the yellow metal in the months ahead, helping to cushion inevitable corrections in the gold market. And given the trade-off between expanding growth and fighting asset-price inflation, Shanghai traders are betting that Beijing will opt to blow even bigger bubbles in asset markets.

And guess who was in charge of the Commodities and Futures Trading Commission back when Markopolos flagged Madoff? None other than Mary Shapiro, who Obama put in charge of the SEC. She was part of the team, which included Robert Rubin and Alan Greenspan, which prevented a Congressional attempt to regulate derivatives. Anyone trust her to crack down on Wall Street?

The only way to protect yourself from the coming credit market and derivatives collapse is move as much money as you can into the safety of physical gold and silver.

The Government can throw money at 1 and 3 - we are seeing in the recent non-farm payroll reports that Government hiring has been rapidly increasing and the Government is throwing billions in a failing attempt to restructure mortgages for some homeowners (over 50% of mortgage modifications go back into default within the first year). #2 can not be addressed except with a lot of time and a real growth economic recovery. It will be a long time before the latter occurs.

The solution used to address 1 and 3 - Government spending - will continue to ramp spending deficits higher, devalue the dollar and eventually create rampant price inflation. Remember this: "we will see deflation in everything we own and inflation in everything we use" (ultimate source of quote unknown)

I'll let everyone read this article and decide for the themselves. Please keep in mind that the trailing "as reported" (i.e. somewhat traditional GAAP method) price/earnings ratio on the S&P 500 Index is significantly higher that the p/e ratio on the tech-heavy heavy Nasdaq at the peak of the tech bubble in early 2000. Also, contrary to Bernanke's claims, the Fed has no way of removing most of the liquidity injected into the sytem from buying toxic assets and distressed mortgages.

Remember that technically/legally the Federal Reserve is an independent, private entity with several unnamed banks as the shareholders (please google this for proof ad nauseum, or better yet, read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin). The Fed has the ultimate access to inside information. In fact, it often originates the events that create this information.

I would like Ben Bernanke to address for all of us where it states in the Federal Reserve Act that the Fed's role is to build a large staff traders to trade along side Wall Street and the general public. What is the purpose of this operation? What funds are being used to provide capital for this massive trading operation? Is the Fed printing money to fund this? What will the Fed do with the profits? (remember, several of the Fed operations to buy toxic assets are ultimately guaranteed by the you, the Taxpayer).

Before you fall into the trap that Congressmen like Diane DeGette (D-Colorado) want you to believe - that the Fed already has adequate Congressional oversight - please watch this shocking and eye-opening video of Rep. Alan Grayson interrogating the woman who is the Inspector General of the Federal Reserve and is supposed to be responsible for oversight and audit of the Fed:

My best guess is that the Fed is creating the infrastructure that will allow it to attempt to hold off the coming tsunami of credit defaults that will hit our system in the near future. I would also surmise that the Fed is going to massively increase the money supply in order to engage in this attempted intervention.

But we'll never be able to know for sure because Barney Frank continues sit on Ron Paul's HR 1207 Bill to audit the Fed, which would easily pass the House and the Fed continues to spend millions lobbying the Senate to make sure the Senate does not pass similar legislation that Congress could then put in front of Obama to sign or veto - it would be awkward for him to have to veto such a Bill, given that Ron Paul's Bill has support of 75% of the country.

When I borrow material or data from another blog, I will normally try to do so only to incorporate that material into my own commentary/analysis in order to avoid "reinventing the wheel." But the Shenendoah blog posted analysis last night that stands on its own in the way that it reinforces my post from a few weeks ago explaining that a second, larger wave of real estate/mortagage failures is building up and will lead to a much larger financial dislocation than we experienced last year. Here's the link to my earlier post:

This was highlighted in a very indirect manner by an article in today’s Sarasota Herald Tribune in what seemed like an innocent enough article in the Monday business section titled Specialist says foreclosure flood ahead . The article is fairly standard business section material where a real estate corporation is moving into the Sarasota area to exploit the flood about to happen. The shocking part is in the article itself, where a region already technically in an economic depression is about to take another major blow according to Troy Funk of Keller Williams Realty:

“The banks have been stalling the short-sale and foreclosure process and it’s a dam that can’t hold,” he said. “They have pretty much all said the same story: Get ready. Get ready. That next wave, it’s coming.” [emphasis mine]

Funk predicts that the number of distressed properties on the market will increase three-fold in short order. “The banks can’t hold onto all those properties and they are going to start flooding the market, we’ve been told.”

The Shenendoah blog is updated roughly once a day and I recommend it as a regular stop for people looking for the truth (the author calls himself "John Galt," after the iconic capitalist hero in Ayn Rand's "Atlas Shrugged").

When you throw the ongoing commercial real estate collapse into the mix, it is the equivalent of tossing gasoline into a napalm fire. Watch for any signs the Fed/Treasury is going to attempt to monetize this whole mess.

My suggestion is that anyone who wants to prepare for what's coming needs to significantly reduce their US dollar-based investments (stocks, bonds, real estate) and move as much as you can into precious metals and related assets (stocks, investment funds). Stay away from ETFs which do not allow investors to verify bona fide custody of the gold/silver, like GLD, IAU and SLV. Those trusts are potential frauds.

Monday, August 10, 2009

As our economy braces for round two of the residential real estate collapse (see earlier posts for data), the commercial real estate market is in full blown collapse. Formerly high-flying Maguire Properties is the latest REIT to hit the wall, as it just announced that it is turning seven buildings with over $1 billion in debt over to its creditors:

As businesses close down, they are no longer able to pay their leases and tenants that remain are negotiating greatly reduced lease terms. The problem is, just like with the housing bubble, commercial real estate became catastrophically overbuilt and overvalued. As the underlying economics collapse (i.e. tenant cash flow) so too does the value of the properties. You can see what's happening with vacancy rates in the biggest cities from this graph from an article in today's Wall Street Journal:

It will be interesting to see if the Fed addresses this situation when they release their policy statement from this week's FOMC meeting Wednesday afternoon. We already know that Bernanke has included Commercial Mortgage Backed Securities as part of his buy-worthless-assets-with-taxpayer-money program. But will the Fed become even more proactive in attempting to support the unsupportable other than with printed money?

The commercial real estate mortgage market is over $3 trillion (this included multifamily apartment buildings). What makes this catastrophe worse is that we have no idea of the total size of the derivatives which are attached to this debt. There is just no possible way that lending "stress tests" incorporated the above vacancy rates when most of the current commercial mortgage paper was underwritten.

The banks are soon going to facing the second wave of residential housing defaults AND a tsunami in commercial real estate defaults. Rest assured the the stock market and the U.S. dollar will not fare well in this next storm. We suggest moving a healthy portion into the only port with a 5000 year track record of survival - gold.

Sunday, August 9, 2009

The truth about what really happened last September when AIG was bailed out by the U.S. taxpayer has been revealed by the NY Times. It now appears that Henry Paulson worked very closely with Goldman Sachs CEO Lloyd Blankfein to order to shape the framework used to bail out AIG (from the NY Times):

"While Mr. Paulson spoke to many Wall Street executives during that period, he was in very frequent contact with Lloyd C. Blankfein, Goldman’s chief executive, according to a copy of Mr. Paulson’s calendars acquired by The New York Times through a Freedom of Information Act request...During the week of the A.I.G. bailout alone, Mr. Paulson and Mr. Blankfein spoke two dozen times, the calendars show, far more frequently than Mr. Paulson did with other Wall Street executives."

It now appears that former Goldman CEO Henry Paulson,in acting as Treasury Secretary, was in direct conflict of interest in this role, as he appears to have been in continuous contact with the CEO of his former firm creating a bailout plan which funnelled more than $10 billion in money to Goldman Sachs thru AIG.

In a riveting interrogation of Pauslon during Ccongressional testimony last month, Rep. Cliff Stearns (R-Florida) aggressively questions Paulson's role, conflict of interest and whether or not Paulson should have recused himself from the bailout of AIG, which now appears to be an indirect of bailout of Goldman Sachs (this is must-watch if you have not seen it, as Paulson is clearly unnerved by the Stearn's questions and at one point is unable to form words to answer Stearns):

We have suspected all along that Paulson, in his bailout of AIG, acted to bailout some Wall Street firms who were exposed to a collapse of AIG. It now appears that he was working closely with Goldman Sachs to make sure this happened. Here is the article from the NY Times so you can decide for yourself:

Keep in mind that if we could conduct an independent audit of the Federal Reserve, the truth would be exposed for all to see. Understand that AIG is intentionally being kept out of bankruptcy court because AIG would then be subjected to the full disclosure of the legal discovery process. It was not until this point in the Enron bankruptcy that we saw the true fraudulent nature of Enron's off-balance-sheet assets. What would we discover about the nature of AIG's off-balance-sheet derivatives, and specifically Goldman Sachs' exposure to an AIG collapse if AIG were put in chapter 11 bankruptcy the way every other massively insolvent firm is?

Saturday, August 8, 2009

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always [PRINT MONEY IN ORDER TO] meet its obligations," Geithner said in a letter to Senate Majority Leader Harry Reid that was obtained by Reuters."

Geithner's request goes on to state:

"Congress has never failed to [GET IN THE WAY OF SPENDING MORE MONEY AND] raise the debt limit when necessary. Because members of both parties have long recognized the need to keep politics away from this issue, these actions have traditionally received bipartisan support," he wrote. "This is clearly a moment in our history that calls for[CONGRESS TO DO THEIR DUTY AND PILE ON MORE WASTEFUL SPENDING FINANCED WITH DEBT AND FOR] continuation of that tradition."

Here's a link to the story: http://www.reuters.com/article/domesticNews/idUSTRE57706N20090808

I don't know about anyone else, but I'll be curious to see when Geithner puts out a proposal for Congress to enact legislation mandating a systematic reduction or our national debt. As it stands now, President Obama has elevated our Government spending to appalling levels and is now creating a debt burden that will end up being catastrophic for our system.

Friday, August 7, 2009

I said after the Nasdaq/Tech crash in 2000 that, ultimately, the Bear market this country is heading into will not be over and a true bottom established until the Dow was somewhere between 2000 and 3000 and CNBC was off the air. I don't know about the ultimate fulfillment level of my Dow target, but it looks like CNBC is rapidly losing viewership:

http://www.businessinsider.com/cnbcs-ratings-fall-off-a-cliff-2009-8

Assuming the Dow/gold relationship reverts to its occassional and gold bull market ending ratio of 1, gold is headed to at least $2000-3000/oz. before the gold bull ends...

Credit card use is falling, credit card defaults are hitting new records every month - we've been wondering how the back-to-school sales season has been doing. Given that our GDP since 2000 has been 70% based on consumption, I'd hazard a high probability guess that retail sales are plummeting.

With the Government subsidization of auto purchases going on right now and just tripled in total size, I would expect that auto sales this fall will plunge as well.

I hope everyone is taking advantage of this rally in the stock market and getting the heck out. I also hope everyone is buying as much gold and silver as they can before the real fireworks start in the precious metals sector.

We have been maintaining all along that what the Government and media refer to as "green shoots" is nothing more than a temporary slowdown in the rate of decline of the economic conditions in the U.S. Today's employment number is a perfect example. The 247,000 jobs lost in July as reported today is being heralded as big a victory for the Obama Administration and another "green shoot" sign of a recovering economy. Notwithstanding that the Goverment employment number is subjected to unbelievable statistical manipulations and future revisions, it was still a quarter of a million jobs lost just in one month AND huge private sector job losses were offset by massive Governent hiring. Not the sign of a healthy economy.

But I wanted to bring your attention to the 33% decline in the Baltic Dry Index since its recent peak in early June. The Baltic Dry Index is considered a very accurate barometer of actual global economic activity, as it measures globally the shipment of commodities - base materials used in economic production:

As you can see, this index of economic activity had a huge move higher when China starting buying beaten down commodities hand-over-fist this past spring. As per the linked Bloomberg article, China has slowed down their commodity purchases and this index is heading south again:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOkYkh3CsUFg

Given that the private sector and manufacturing base in the U.S. continues to shed jobs, it is clear that economic activity in the U.S., or lack thereof, has had no bearing on the rise in Baltic Dry Index and is probably dragging it lower. In fact, Cisco reported earlier this week that their next quarter's sales will be down at least 15-20%. Cisco's revenue stream has always been considered a benchmark barometer of economic activity in this country.

So the next time you hear someone mention "green shoots," take a look at the more accurate "grass roots" indicators, like the BDI above, or what companies like Cisco are actually reporting. Those tend to provide a lot more substance than the hot air marketed on CNBC and Wall Street.

As an aside, I would like point out that China's slowdown in commodities purchases does not include gold. We know this because China has indicated to the IMF that not only would they like to buy the 403 tons of gold the IMF wants to sell, but China would actually like buy ALL of the IMF's 3200 tons of gold:

Gold is going to go much higher this year, especially as the truth about what's really happening in the U.S. economy is translated into the stock market, which is now more overvalued on a p/e basis than the Nasdaq was at the height of the tech bubble.

Regarding today's Government enhanced job loss report, this commentary posted at www.zerohedge.com explains truth behind the hype and backs it up with data:

Thursday, August 6, 2009

Fannie Mae draws another $10.7 billion from Obama's "redistribute taxpayer money to those who made a poor decision to overpay for their home" program. FNM reported its 8th straight loss and announced that they'll report losses for the foreseeable future and continue taking money from the taxpayers:

"Fannie Mae said it expects the quality of its assets to worsen further and to continue accumulating losses as it executes President Barack Obama’s efforts to modify or refinance loans for as many as nine million homeowners."

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAoMEkN9lWGA

Did everyone vote for this program when they pulled the lever for Obama?

FNM claims their negative net worth is $10.6 billion, but I will guarantee anyone who can get me in to see the inside books there that I can show FNM's negative net worth is easily several hundred billion dollars. And we still do not know the real story with their derivatives book.

As we keep pouring $100's of billions down the sewage holes that are AIG, Wall Street, the auto industry, FNM/FRE, you have to wonder where this will all end. I hope everyone is putting as much money as they can into gold and silver bullion.

The Fed conducted a Permanent Open Market Operation today (POMO), in which it purchased from Wall Street firms $4.753 Billion of the of the $28 Billion 7-yr Treasuries auctioned last Thursday. A Fed POMO is an operation in which the Fed directly buys Treasuries from bond brokers as a means of permanently injecting money into the banking system. The Fed holds these bonds permanently on its balance sheet.

Chris Martenson sniffed this out today at http://www.chrismartenson.com/blog/fed-buys-last-weeks-treasury-auction/23880 where he shows the details copied from the Fed's website and from the details of the auction released by the Treasury. As you can see, the Fed today bought $4.753 Billion of the exact bond cusip from last weeks Treasury auction (the cusip number is a specific number assigned to any registered stock or bond security for identification purposes).

As a former bond trader, it wouldn't bother me if just a small amount of paper with last week's 7-yr Treasury cusip showed up on today's POMO report. That could be attributed to coincidental bond trading flow. HOWEVER, the fact that Primary Dealers took down 36% of last week's 7-yr auction and then the Fed turned around and repurchased almost 48% of those exact bonds from the Primary Dealers suggests that some kind of arrangement beyond mere coincidence was in place between the Fed, the Treasury and the Primary Dealers.

In fact, between last Thursday's $28 Billion 7-yr Treasury auction and today's stunning find by Mr. Martenson, the Fed conducted FOUR POMO operations in which it swallowed up (i.e. directly monetized) $23.74 billion in Treasury bonds ranging in maturity from 4 yrs. to 17 yrs. This represents almost 85% of the total 7-yr. Treasury auction. IN FACT, the four POMO operations in the last week represents neearly 10% of the total number of POMO operations conducted by the FED in the last 12 months. Here is a link to the Fed's POMO operations:

http://www.newyorkfed.org/markets/pomo/display/index.cfm

Given that we know the Chinese did not participate in a meaningful way in the last week's Treasury auctions, many of us were wondering how the Treasury was able to auction off as much paper as it did without a significant back-up in yields or more overall volatility in the bond market. It looks like we have our answer and the answer is that the Federal Reserve has resorted to printing money in order to directly monetize the record Government spending deficits AND the Treasury auctions used to finance those deficits. Get ready for a big uptick in inflation.

Do NOT believe anything you hear from the financial media, your local news sources, the Government and especially those housing industry pimps, the National Association of Realtors or National Association Home Builders. We are leading up to a crushing wave of housing foreclosures, the effects of which will be devastating to the financial and economic system in this country.

I borrowed the chart posted from www.calculatedblogspot.com. This chart shows the rapidly increasing rate of mortgages that are 90+ days delinquent. I know for a fact from chatting with people in the industry that banks are intentionally underreporting delinquencies. Why? 1) When they report troubled assets, it requires them to post more capital - capital they do not have - so underreporting delinquencies allows banks to maintain the appearance of healthier capital ratios. 2) Banks do not have the manpower to process the rapidly growing number of bad mortgages.

Anectdotally, I know a CPA who has several formerly high net worth clients who lost their jobs and have not made mortgage payments for several months. Many of them have not received a phone call or a letter from their bank/mortgage servicer about their missing payments. In this case, the mortgages are not being reported as delinquent to the regulatory authorities. The point is that this delinquency graph actually understates the actual number of 90+ day delinquent mortgages.

At some point, the mortgage-backed bond trusts will run out of cash to make coupon payments to investors of the trusts and the trust servicers will be required to start putting pressure on the banks to either make the payments or start seizing collateral.

What this is leading up to is a massive wave of foreclosures, the supply of which will further crush housing prices. This is just a basic law of supply and demand. As I have previously stated, I am on the record forecasting another 35-40% of pricing downside in the housing market. I will add to that the price drops will be much bigger - i.e. greater than 40% - in all resort towns and high net worth, 7-figure housing areas.

"Exactly half of the registered voters surveyed from July 27 to Aug. 3 by Quinnipiac said they approve of the job Obama is doing, compared with 42 percent who disapprove. That’s down from 57 percent approval and 33 percent disapproval in a poll taken in late June, according to results released today."

http://www.bloomberg.com/apps/news?pid=20601087&sid=apHNO9NOUupo

Is the public getting angry about the massive transfer of wealth from the taxpayers to Wall Street, which has accelerated under Obama? I saw a statistic a couple days ago which showed that the Youtube.com viewings of Obama's daily pep speeches have been plunging as well.

To be fair, Obama was thrust into the Presidency with no real leadership or broad policy decision-making experience or track record. I'm not sure this was a good choice by the electorate at this point in time. HOWEVER, Obama has made tragic decisions every step of the way, starting with his appointment of Larry Summers to be his Chief Economic Advisor back in November 2008. Here's some info on Larry Summers you might have missed:

I don't believe Obama will be able to recover his Presidency unless he completly cleans house in his Administration and asks the Public for a "do over." Unless he takes this drastic measure, the continued raping and pillaging of taxpayer wealth by Wall Street will continue unabated and our inexperienced little savior from Chicago may actually turn out to be less popular than his predecessor was at the end of his term.

Wednesday, August 5, 2009

The Treasury announced a record $75 billion quarterly refunding auction next week. The number of Treasury auctions have doubled from 36 to 72 over the past year. In the same breath, Treasury Secretary Tim Geithner "has pledged to reduce government borrowing to a sustainable path once the economy returns to firmer footing."

Seriously, who is he kidding? He made a similar comment to an audience of Chinese university students in his spring trip to China and they laughed at him. The reality is that the Obama Government essentially quadrupled the spending deficit in it's first year from the deficit level in Bush's last term ($500 billion to $2 trillion, roughly).

But I would love to see the real spending numbers, and thus the real deficit, because multi-billion spending programs like the war on terror and the Government takeover of Fannie Mae and Freddie Mac AND the Wall Street bailout are "off budget," meaning the costs and the deficit effects of that spending is not reported in the official "budget."

Furthermore, the tax revenue base declined by record amount not seen since 1932:

http://www.msnbc.msn.com/id/32275055/ns/politics-more_politics/

So our spending, on and off budget, continues to increase by $100's of billions, and the revenues to pay for that spending is declining at record pace. How the heck can Geithner possibly expect anyone to take him seriously when you look at what the real numbers are and the facts behind the real spending and the real source of Government revenue?

As an aside, I would like to express that, as reported by the NY Times, et al., the expletive-filled, hour long tirade by Geithner in a meeting with other members of our Government, including some prominent women, is not only completely unprofessional, it is a complete disgrace to our country and irreparably inexcusable. Coming from a Wall Street environment which tolerates quite a bit of unprofessional behavior, if I had put on a curse-filled display like in a meeting with other professionals, especially women, I would have been fired.

Tuesday, August 4, 2009

In an earlier post I showed, with plenty of back-up data, that in the next 6-12 months the housing market will be flooded with homes from prime mortgage foreclosures. I showed,using conservative calculations, that the value of that foreclosed inventory can easily reach or exceed the entire size of the $500 billion subprime market.

I didn't mention the "shadow" inventory of homes that currently hangs over the market. The shadow inventory would be the homeowners who are thinking about selling but want to wait until the market "firms" up. Well, today Reuters posted an article titled "'Shadow' Inventory Lurks Over U.S. Housing Recovery." Here's an interesting quote from the article from zillow.com, an online real estate service site:

"The number of homes listed officially on the market, while still at historically high levels, might be only the tip of the iceberg," said Stan Humphries, chief economist at real estate website Zillow.com in Seattle, Washington. (emphasis mine).

A survey of 2,123 adults conducted by Zillow found that the potential number of "shadow" sellers could be as highs as 20 million.

Here's a link to the article:

http://www.reuters.com/article/GCA-Housing/idUSTRE56U5YZ20090731

When you combine the "shadow" inventory with coming tsunami of foreclosure inventory, it is clear that the housing crisis in this country is not even halfway to its bottom. It is my view that housing prices still have another 30-40% of downside before any kind of real bottom is reached.

Monday, August 3, 2009

"China is rapidly accelerating its efforts to internationalise its currency with a series of manoeuvres that could see the renminbi soar to become one of the top three traded monetary units in the world:"

Be careful with what you are doing with your stock investments. Do not be tempted to chase the stock market higher here. In fact, it would be prudent to sell into this rally and be grateful for what the Fed/Government has done for your investment accounts since the March lows.

Please don't be fooled by the analysts who will come out and exclaim that today's auto sales indicate a recovery. The Cash For Clunkers program was responsible for a brief uptick in auto sales at the end of the month. Ford even admitted as much. In fact, most dealers where conducting pre-sales in anticipation of the program's commencement.

I don't agree that the Government should be using tax money to subsidize auto sales, but this is a one-time phenomenom that will hurt "organic" sales in the future.

The more alert blogs have finally figured out how Goldman Sachs, et. al. are creating enormous trading profits, especially at a time when trading volumns in most securities have seriously declined. These Wall Street firms are buying toxic, illiquid garbage which institutional investors (read: your pension fund or insurance company) have marked at low levels (yet still not low enough) and selling these securities into the Fed at the Fed's inflated bid levels. This is one way in which the Fed is injecting liquidity into the big banks - at the taxpayers' and pension investors' expense. It is also a primary reason the Fed refuses to disclose what it its paying for these toxic assets and why the Fed is spending millions in lobbying to prevent an audit.

Here's the mechanics, and it's a trading ruse that was being used when I was trading junk bonds back in the 1990's: Naive pension fund has toxic crap asset marked down to 20 cents. Snake Wall Street firm has bid from the Fed at 50 cents. Pension fund trader has no idea who the buyer is and what the general bid is in the market, because this asset hasn't traded in over a year. The 20 cent mark is based on Markit's "guesstimate." Snake Trader tells Pension Trader "look, I can pay you 10 cents for this asset, it's the only bid in the market and I'm not even sure where I'll re-trade this thing, but I'm willing to take some risk at .10. Pension Trader, in somewhat panic and somewhat gratitude sells the asset to Snake Trader. Snake Trader turns around sells it to the Fed for 50 cents. A 40 cent spread on a bond with $10 million face is $4 million dollars. WE know the Fed is eventually investing over $1 trillion to buy this toxic crap. If firms like Goldman and B of A (Merrill) and JP Morgan can average a 20 cent spread on $1 trillion, that will eventually be $200 billion injected into the banks at the expense of everyone else.

Is a 20 cent spread, on average, unrealistic? I know for a fact that it is not because we averaged 10-20 cent spreads in trading junk bonds out of the RTC and into investors back in the 1990's. Given that these toxic asset-backed bonds are even more toxic and less liquid than junk bonds were, I'd say an average of a 20 cent spread overall may actually be conservative.

Think about how this works the next time you look at your pension or 401k statement and then you see Goldman et. al. reporting massive trading profits. Those profits are nothing more than these Wall Street firms ripping off the whole system. And one more point, some of the blogs reporting this activity are speculating that the Fed does not know how much mark-up is being taken by Wall Street on these trades. I beg to differ and would suggest that Bernanke and his cohorts have a very good idea how much is being made on this trade.

Here is the link to the Financial Times article which originally reported what is going on:

Sunday, August 2, 2009

Ron Paul's HR 1207 has 278 House co-sponsors. A House Bill only needs 218 votes to pass a House vote. How come Barney Frank will not let HR 1207 out of the House Financial Services Committee, of which he is the Chairperson, and go before a vote of the whole House of Representatives?

I would like to point out that, for those who do not know, the Fed has hired a full staff of lobbyists, headed by Linda Robertson, who was the chief lobbyist for Enron. I find incredible irony in this move, given that Enron turned out to be one big fraud. Is the Federal Reserve one big fraud? There's no question whatsoever the Fed is spending millions on lobbying and public relations in order to try and squash the movement for an audit of the Fed.

Gary North, well-known as a free market, Austrian economics advocate, has written a superb analysis about why Barney Frank is sitting on this HR 1207 and why Bernanke will fight for his public life in order to prevent legislation which requires an independent, non-partisan and public audit of the Fed. The Fed, after all, as pointed out in his essay, has usurped control over the money supply in this country, in direct violation of the Constitution. Here is a link to his article:

http://news.goldseek.com/LewRockwell/1249244807.php

Gary North has not touched upon the fact that an audit of the Fed would expose the extent to which the Fed is completely monetizing the biggest banks, using AIG as its conduit. In addition, an audit would expose the extent to which the Fed is using the money it is printing to manipulate and prop up the stock and bond markets. AND, most significantly in my view, an audit would expose the extent of which the Fed is trying to keep a lid on the price of gold - which de facto supports the Fed's intervention in the U.S. dollar - and the degree to which the Fed has leased out most of the gold that is supposed to be owned and held in custody IN THE UNITED STATES on behalf of the citizens of this country.

I would urge everyone to please email the House Financial Services Committee and let them know you want them to get HR 1207 moved from Committee to vote on the House Floor. This link will send your email to every Democratic member of the Committee:

http://www.house.gov/financialservices/contact.html

Please send an email to your own House Rep also:

https://writerep.house.gov/writerep/welcome.shtml

The Federal Reserve has quietly and insidiously usurped and transferred economic and political power from the citizens to the biggest banks. This needs to stop.

Eric Arthur Blair aka George Orwell

"Hope" is not a valid investment strategy

Full Time Jobs Over Last 5 Years

Is Your Gold Missing?

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Epic Quote - "Jesse" Sent This To Me

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title." - Anonymous

The Basic Fundamental Problem

What's the solution?

“THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS THE RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION OR LATER AS A FINAL AND TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED.”

Ludwig von Mises – Austrian Economist (1881- 1973)

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie? JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

Priceless Quote From Richard Russell

On Larry Summers: This doofus practically ruined Harvard when he headed it. I can't think of a worse choice to be chief economic advisor. I wouldn't trust Summers to manage a Starbucks franchise.

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.

Quote of the Month

And very relevant in the context of yesterday's post about gold moving higher against all fiat currencies:

Just imagine what would happen if a mere ten percent of the money currently going into bonds were instead to go into gold. As in 1972, the real move has yet to begin.

- Murray Pollit, Pollit & Co.

A Picture Says It All...

www.moneyandmarkets.com

Golden ore samples produced by Eurasian Minerals

Undisclosed exploration site

The Next Reserve Currency?

1 oz. Chinese Panda

Guess who said this?

Rising prices of precious metals and other commodities are an indication of a very early stage of an endeavor to move away from paper currencies...What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment.

-Alan Greenspan, 9 Sep 2009

THIS is what REAL money looks like

1 oz. Gold Eagles

Alan Greenspan said what?

“Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”

From "Gold and Economic Freedom" a 1966 Essay by Alan Greenspan

About Me

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for a large bank. I have an MBA from the University of Chicago, with a concentration in accounting and finance.
Currently I co-manage a precious metals and mining stock investment fund in Denver.
My goal is to help people understand and analyze what is really going on in our financial system and economy.